Sunday, November 29, 2015

By Our Representative
Painting a gloomy picture of the Indian economy, a Reliance Industries think-tank analysis has said that, despite the Make in India campaign of Prime Minister Narendra Modi, statistics about domestic investment and capital formation are “not encouraging” and show a “decline in the second quarter of 2015”, with “India's saving rate down from a peak rate of 38 percent to 31 percent.”The analysis, released by the Observer Research Foundation (ORF), titled “Urgent need for investment”, by ORF senior fellow Jayshree Sengupta, says, “Everyone watching the economy is worried about the slow rate of investment which is not forthcoming from the Indian corporate sector.”
Sengupta says, “Net profits in the second quarter of 2015-16 have remained flat at 0.05 per cent for the corporate sector. Except for pharmaceuticals, fast-moving consumer goods and automobiles, companies are struggling to pay off debts.”
Quoting international rating agency Standard & Poor (S&P), the analysis says, “100 corporates had a debt of $300 billion in 2014. High interest payments towards paying back of corporate debt are cutting into their profits.”
Citing Indian rating agency Crisil, she says, an analysis of the 192 listed public and private sector companies suggest that “key sectors such as infrastructure, energy, metals, cement, automobiles, pharmaceuticals, and textiles, showed 4 per cent decline in capital expenditure for 2015-16.”
Pointing out that “for private sector companies the capex plans declined even more by 11 per cent”, Sengupta says, “Corporate sector depends a lot on rural demand and there has been bad news on the agricultural front.”
“Agricultural stress is still present and agricultural growth slid to 1.5 per cent in April-June quarter. Rural demand is also dented because of falling wage growth due to three consecutive monsoon shocks. Slack demand is also due to low earnings from agricultural exports because of low commodity prices”, the analyst says.
Stating that “global commodity prices have fallen by nearly 17 per cent compared to last year”, she says, “Sales of the corporate sector have declined by 4 per cent. Due to low rural demand, there is piling up of inventories in factories and thus new investment by the owners is being stalled.”
The analyst adds, “According to Reserve Bank of India, factories are running 30 per cent below capacity. In ten out of 12 sectors, capacity utilization is at a five-year low causing new project announcements to dry up.”
Wondering why, when there are 87 billionaires and 2.5 lakh dollar millionaires, investment is still not forthcoming in India”, Sengupta says, “In Make in India campaign, 25 areas have been listed and Modi wants to make India a new global manufacturing hub."

"But red tape, problems with availability of skilled labour, land acquisition, creaky infrastructure, mandatory clearances of various kinds and lack of clear exit laws, are holding back investors from coming forward”, the analyst adds.
“Manufacturing growth can be fueled by a big rise in export demand. But exports are down for 11 consecutive months and have shrunk by 17.5 per cent”, the analysis predicts, “Exports will remain sluggish for the next one year because of the slowdown in global demand with world output growing only at 3 per cent.”